Hometap equity partners review
This loan alternative shares the value of your home with investors for upfront cash, but with hefty upfront fees and other drawbacks.
Hometap advertises the ability for you to access the equity you’ve built in your home without a loan — no interest, no monthly payments. Instead, you allow Hometap to invest in a percentage of your equity in exchange for a lump sum payment you can use toward renovations, vacation or bills. But the agreement lasts only 10 years. And if by the end of it, you don’t have the money to pay Hometap back, you could be forced to sell your home.
|Loan types||Home equity investment|
|Other fees||Expect to pay a 3% service fee as well as home appraisal, title and government fees that can add up to $1,600 or more.|
|Available States||Only available in: AZ, CA, FL, MA, MD, MI, MN, NC, NJ, NY, OR, PA, VA, WA|
- No payments or interest
- No hit to your credit score
- Full digital application
- High fees
- Not quick money
- Can end with a forced sale of your home
There isn’t much in the way of customer complaints but for the timing required for the process, which can vary due to the availability of home appraisers, documentation and reporting.
That’s not unusual, given how new the company is. Still, industry experts warn caution. Top concerns are that investments aren’t regulated like bank loans, and therefore aren’t subject to the same scrutiny. Also, wild fluctuations common in the real estate market can make this kind of investment unpredictable, and no one yet knows the ramifications of this new product.
How does Hometap work?
Working with Hometap involves entering into an investment agreement that provides you with a cash lump sum of your home’s equity. In return, you agree to give Hometap a stake in the value of your home’s future selling price, typically between 5% and 15% of your home’s appraised value.
Hometap is willing to invest as much as $400,000, depending on your home’s value and built-up equity. And the amount of equity you tap into can’t be more than 30% of your home’s total value.
You have up to 10 years to settle the investment, either by sharing the proceeds of your home’s sale or paying off Hometap’s stake. If your home’s value goes up in that time, that’s great for both you and Hometap. If the value of your home goes down, the company shares in your loss.
A deeper look at Hometap on a $200,000 home
Let’s say you own a home that’s valued at $200,000. You’re looking to invest about $30,000 into a kitchen renovation, but you aren’t interested in the payments and terms of a home equity loan.
You could instead enter into an investment agreement that offers Hometap a 15% stake in your home — what the company calls the Hometap Share — providing you with $30,000 cash up front:
- Initial home value: $200,000
- 15% equity stake: $30,000
Let’s further say that you hold out on settling Hometap’s investment for the full 10 years of your agreement. If your home appreciates at the 3% national average over that period, it could be worth $268,783 at the end of the decade.
How much you end up paying Hometap to settle comes down to the investment estimate prepared at the time of signing up. The company says its share of the change in value depends on how much your home appreciates or depreciates. It’s likely the company takes its 15% equity stake — $40,317 — in addition to a percentage of the appreciated value of your home, depending on your agreement.
Settling the investment
You must buy out Hometap’s share in the value of your home at the time of settlement. You can pay this amount from your savings, refinance with a loan or give Hometap their percentage from the proceeds of selling your home.
There’s no guarantee that Hometap will make a profit on its investment at the end of the 10-year term. For example, if home values go down, you could end up paying back less than the original investment. However, if prices spike in your area, you will end up paying more. Hometap says that it puts an annual appreciation cap of 20% on the amount of money it can make.
If you find yourself unable to buy out the investment, your agreement allows Hometap the right to force the sale of your home at the end of the 10-year term.
What happens if I renovate my home within that 10-year term?
Hometap doesn’t have a stake in the value of appreciation that’s the result of renovations. So, if the renovation increases the value of your home by $25,000 or more, you can request an adjustment to the investment agreement that excludes the renovation appreciation from the home value used to settle the investment.
That means if you add a bathroom that increases your home’s value by $50,000, you may be able to exclude that $50,000 from the amount used to settle Hometap’s investment percentage.
What costs are associated with Hometap?
No monthly payments or interest is a selling point. But Hometap is not a free service.
Hometap’s 3% fee is deducted from the amount you receive, and you can expect to pay a series of other fees to satisfy the agreement.
|Fee type||What it is||Average cost|
|Closing fee||Upfront fee similar to a lender’s fee||3% of the investment amount|
|Home appraisal||Process of property valuation||$600 to $800|
|Title charge||Notary, attorney, reporting and settlement fees||$700 to $800|
|Government filing||Recording and completing paperwork with state and county||$350 to $1,000|
How does Hometap compare to a home equity loan?
Both Hometap and a home equity loan give you access to the equity you’ve built in your home. But unlike Hometap, with a home equity loan, you’ll know exactly how much you’ll end up paying back at the end of your loan term. While a loan requires approval and a monthly payment, including interest, you can end up paying less in interest if you contribute a little more than required each month.
Here’s what you might pay to borrow $30,000 through a 10-year home equity loan on a $200,000 home:
- Initial home value: $200,000
- Equity payment: $30,000
- Home equity loan interest rate: 5.59%
- Monthly payment: $326.92
- Total paid over 10 years: $39,230
If you’re unable to pay back Hometap’s investment, the company can force the sale of your home. That’s true if you default on a home equity loan as well, but you could end up paying more with Hometap, depending on how much your home appreciates.
How do I qualify for Hometap?
Hometap advertises online prequalification in 30 seconds through a short quiz on its site.
Criteria the company considers includes:
- Location. Hometap is available in Arizona, California, Florida, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Virginia and Washington only.
- Credit score. There’s no set FICO credit score requirement, but Hometap tends to work with homeowners whose scores are above 600.
- Equity. To work with Hometap, you must have built at least 25% equity in your home.
- Resident status. Hometap considers rental properties, but it doesn’t invest in vacation homes. You or a tenant must live in your home at least six months of every year to qualify.
- Investment amount. The maximum borrowers can invest is under 30% of the total home value, or under $400,000. This amount may be smaller due to other qualifying factors.
What are the benefits of Hometap?
If you don’t plan to stay in your home for more than 10 years, an equity investment agreement with Hometap can be a way to access your equity without a loan.
- No payments or interest. Access your equity without increasing how much you already pay out each month.
- No hit to your credit score. Unlike with a home equity loan or line of credit, your Hometap application doesn’t require a hard pull on your credit.
- Full digital application. Hometap runs your credit score and arranges your home’s appraisal from your computer or phone. Just provide your personal details, upload related documents and spend about 20 minutes completing the application.
What to watch out for
There are potential drawbacks of Hometap’s investment as well, especially when it comes to something as important as your home.
- High fees. Expect to pay a 3% service fee as well as home appraisal, title and government fees that can add up to $1,600 or more.
- Not quick money. The process for the investment can take three weeks or more, which may not help if you need the money for a short-term emergency.
- Can end with a forced sale of your home. Hometap can force the sale of your house to recoup their investment if you’re unable to pay back their share. If your home’s value goes up significantly, you could end up having to come up with a large sum of money to settle.
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How do I get started with Hometap?
Tap into your equity in six steps:
- Qualify. Go to Hometap’s site and click Get an Estimate at top right. If your home is in an area where the company invests, Hometap asks for your personal information to run a soft credit check and prepare an estimate.
- Chat with a rep. If you like how much Hometap is willing to invest, walk through the process with an assigned investment manager.
- Finish your application. Apply to Hometap’s equity program online.
- Review and accept your offer. After a third-party home appraisal, Hometap sends you an offer detailing how much equity you can tap into and the amount of Hometap’s share.
- Attend closing. Confirm where you’ll meet to sign the papers.
- Get your money. Hometap wires the money into your bank account a few days later, leaving you to use the money as you see fit.